DE LA CRUZ, CARL DOMINE P.

BSENTREP
CHAPTER 1 & 2
Answer Problems # 4 and 5 on page 51

4. Over the past few decades, East Asian economies have increased their share of world
GDP. Similarly, intra East Asian trade that is, trade among East Asian nations has grown
as a share of world trade. More than that, East Asian countries do an increasing share of
their trade with each other. Explain why, using the gravity model.

The GDP of any two East Asian nations is now higher since the GDP of East Asian

nations has increased. Also, the trade volume between them has increased, as predicted by the

gravity model. Increases in the percentage of world GDP attributed to East Asian economies

show that these nations have successfully integrated their economies into the global economy.

Nearly every trade deal involving these nations increases the economic size of East Asian

nations, which is measured as the sum of all the final goods and services generated on each

economy. When the proportion of world GDP attributed to East Asian economies increases, the

size of East Asian economies increases in each and every trade relationship that involves East

Asian economies. As a result, trade links with the East Asian countries have become more

established over time. The explanation for why there is more trade between these two countries

is the same as before. In the past, they had small economies, that means that their marketplaces

were too limited to allow them to import huge quantities of goods from outside the country.
5. A century ago, most British imports came from relatively distant locations: North
America, Latin America, and Asia. Today, most British imports come from other
European countries. How does this fit in with the changing types of goods that make up
world trade?

As the chapter explains, a large portion of world trade a century ago consisted of

commodities, many of which were influenced by geography or climate. So, the United Kingdom

imported items that it was unable to produce locally. This required importing products from the

Western World or Asia, such as cotton or rubber. The United Kingdom had less need to import

from other European countries because its climate and natural resource were relatively similar to

those of the rest of Europe. In the Industrial Revolution, where manufacturing trade accelerated

and has continued to expand with improvements in transportation and communications, it is not

surprising that the United Kingdom would turn more to the nearby and large economies in

Europe for much of its trade. This result is a direct prediction of the gravity model.